Small Private Colleges Lose More Students Despite Rise in Discounting

May 06, 2013

Tuition discounting reached a rec­ord high in 2011-12 at private nonprofit colleges, but that common technique for attracting students often failed to have the desired effect, especially at small, less-selective institutions, according to a report released on Monday by the National Association of College and University Business Officers.

Colleges use tuition discounting to entice students who might otherwise be unable or unwilling to pay full tuition. The discount rate, expressed as a percentage, measures how much of a college's gross tuition and fees is returned to students as scholarships, grants, or other forms of aid. Many private colleges rely on a high-tuition, high-discount pricing model in order to make ends meet and keep enrollment steady.

But according to the Nacubo report, that strategy may be reaching its limits as students and their families become even more frugal about college costs in the wake of the recession and the sluggish economic recovery.

The report, which is based on a survey of 383 private colleges conducted last fall, says that the discount rate reached an average of 45 percent for first-time, full-time freshmen in 2011-12, up from 44 percent in 2010-11. The average discount rate for all undergraduates was 40 percent for the colleges surveyed, although nearly 35 percent of respondents decreased their rate or held it flat.

"This all-time high indicates that institutions are responding to a changing student environment, stemming from the weak economic recovery," the report's authors conclude.

The colleges' average grant to each freshman covered 53 percent of tuition and fees in 2011-12, up from about 52 percent the year before.

Even with increased aid, more than half of the colleges surveyed said that their freshman enrollment was declining, and the trend was especially pronounced at baccalaureate institutions with enrollments of less than 4,000. More than 83 percent of those colleges saw a decline in both freshman and overall enrollment, according to the survey.

Over all, 45 percent of the colleges surveyed lost undergraduate enrollment. But such declines affected less than 12 percent of master's- and doctoral-level institutions with more than 4,000 students, and less than 5 percent of research universities.

Nearly half of the chief business officers at colleges that lost enrollment said the cause was price sensitivity: Students are increasingly choosing lower-cost colleges.

For many of the colleges that gained enrollment, one key was to dole out more financial aid, the report says.

But that step—raising the institution's discount rate still more—meant that the higher enrollment provided little or no overall growth in revenue. Adjusted for inflation, net tuition revenue has "essentially been flat for the last 12 years," the report concludes.

The full report is available for sale on the association's Web site, at $50 for association members and $200 for nonmembers.